Hedge funds betting against banks ‘uneducated’: Bell Potter

“Has anyone noticed that bad debts are falling and that the bank shares are priced by mum and dad investors who own 50 per cent of each stock?” Bell Potter’s Charlie Aitken asks of hedge funds questioning the value of Australian bank shares.
Photo: Angus Mordant

by
George Liondis

Foreign hedge funds betting against the performance of Australia’s banks have been labelled uneducated and confused as the share prices of the big four continue to rally.

Bell Potter senior stockbroker
Charlie Aitken
said international investors who were “shorting" Australian banks in the belief they were overdue a share price correction did not understand the local market and were likely to get burnt.

Shares in
National Australia Bank
reached a five-year high on Monday, while
ANZ Banking Group
,
Commonwealth Bank of Australia
and
Westpac Banking Corp
rallied as the broader market closed at its highest level since 2008.

“I think that many foreign investors are uneducated on the nuances of the Australian banks," Mr Aitken said.

AFR
AFR

“Has anyone noticed that Australian median property prices are up 10 per cent year on year? Has anyone noticed that the Australian dollar bubble has burst? Has anyone noticed that bad debts are falling and that the bank shares are priced by mum and dad investors who own 50 per cent of each stock?"

The move comes despite the fact that many international hedge funds have suffered heavy losses in recent years by betting against Australia’s banks, which have defied the doom and gloom on global financial markets to post record profits.

Mr Hartnett said some overseas investors were again shorting Australian bank shares in the belief they were overvalued and would be hit as a downturn in emerging markets such as China spreads here.

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“There are a number of hedge funds that are short the Australian banks right now, trying to play on that demise of the emerging markets," Mr Hartnett said.

Shares in NAB closed at $34.10 on Monday, the highest since May 2008, while ANZ and Westpac rallied and CBA traded just below a record high. CBA was labelled the most expensive bank stock in the world by analysts earlier this year.

Equity Trustees chief investment officer
George Boubouras
said Australia’s big four banks deserved to be valued more highly than international peers.

“The four banks are the most expensive in the world and legitimately so. They have the best credit ratings in the world, they are in the top 10 for market cap in the world, their ‘cost-outs’ have been extraordinarily well done with further to go and capital management is best of breed, globally," Mr Boubouras said.

“Quite clearly there is a lot of information in the market . . . that the shorts will build. That may be on the basis that they are expensive versus their peers offshore, but like-for-like they are not comparable to their peers offshore."

Mr Aitken said “the strongest gains have probably been seen", but added Australia’s bank shares were likely to continue to advance as they increased dividends and profits.

He said international investors did not understand that there were a high number of retail, mum and dad shareholders in the big four banks, who held on to their shares because of the high dividend payments.

“They [foreign investors] just can’t understand the valuations. There are a whole lot of reasons why Australian banks are more expensive than American or European banks, but that is like comparing a mango to a banana.

“It is vaguely relevant, but is it really?" Mr Aitken said.

“I think the pricing of Australian banks is going to continue to confuse foreign investors who believe they are just some derivative of Chinese GDP growth and probably never get it.

“For a genuine Australian bank share price correction that is sustained, you really need mums and dads to give up on Australian banks and I just cannot see that.